BofA: Dividend Growth at 20-Yr Discount to Dividend Yield

By Michael Aneiro

Bank of America Merrill Lynch says dividend investors should focus on dividend growth stocks, rather than just the highest dividend payers, in 2013, as dividend growth stocks are trading at the biggest discount to dividend yield stocks in at least 20 years.

“We continue to believe in dividends,” says BofA equity and quant strategist Savita Subramanian, She adds that BofA is “pretty unapologetically bullish” on stocks in 2013, with a 1600 year-end target for the S&P 500, saying the bank is overweight in technology, energy and industrials but underweight “bond-like” sectors such as utilities and telecom.

Nine of the top 10 Barron’s stock picks for 2013 – the cover story of the current magazine issue – pay dividends, including Apple (AAPL), BlackRock (BLK), JP Morgan Chase (JPM), General Dynamics (GD) and Novartis (NVS).

Subramanian doesn’t see 2013 tax changes having a major impact on dividend stock performance and sees the overall dividend payout ratio increasing over the next few years. “There’s not going to be any sign of a dividend bubble until we get a payout ratio that’s above average,” she says.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.